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Fiscal Sustainability in the Presence of Systemic Banks: the Case of EU Countries

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  • Bénassy-quéré, A.
  • Roussellet, A.

Abstract

We provide a first attempt to include o?-balance sheet, implicit insurance to SIFIs into a consistent assessment of fiscal sustainability, for 27 countries of the European Union. We first calculate tax gaps a la Blanchard (1990) and Blanchard et al. (1990). We then introduce two alternative measures of implicit o?-balance sheet liabilities related to the risk of a systemic bank crisis. The first one relies on microeconomic data at the bank level. The second one is based on econometric estimations of the probability and the cost of a systemic banking crisis. The former approach provides an upper evaluation of the fiscal cost of systemic banking crises, whereas the latter one provides a lower one. Hence we believe that the combined use of these two methodologies helps to gauge the range of fiscal risk.

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Bibliographic Info

Paper provided by Banque de France in its series Working papers with number 428.

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Length: 41 pages
Date of creation: 2013
Date of revision:
Handle: RePEc:bfr:banfra:428

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Keywords: Fiscal sustainability; tax gap; systemic banking risk; off-balance sheet liabilities.;

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  1. Bohn, H., 1990. "The Sutainability Of Budget Deficits In A Stochastic Economy," Weiss Center Working Papers 6-90, Wharton School - Weiss Center for International Financial Research.
  2. Carmen M. Reinhart & Kenneth S. Rogoff, 2011. "From Financial Crash to Debt Crisis," American Economic Review, American Economic Association, vol. 101(5), pages 1676-1706, August.
  3. Hamilton, James D & Flavin, Marjorie A, 1986. "On the Limitations of Government Borrowing: A Framework for EmpiricalTesting," American Economic Review, American Economic Association, vol. 76(4), pages 808-19, September.
  4. Merton, Robert C., 1977. "An analytic derivation of the cost of deposit insurance and loan guarantees An application of modern option pricing theory," Journal of Banking & Finance, Elsevier, vol. 1(1), pages 3-11, June.
  5. Olivier Jean Blanchard, 1990. "Suggestions for a New Set of Fiscal Indicators," OECD Economics Department Working Papers 79, OECD Publishing.
  6. Viral V. Acharya & Itamar Drechsler & Philipp Schnabl, 2011. "A Pyrrhic Victory? - Bank Bailouts and Sovereign Credit Risk," NBER Working Papers 17136, National Bureau of Economic Research, Inc.
  7. Caprio, Gerard & D’Apice, Vincenzo & Ferri, Giovanni & Puopolo, Giovanni Walter, 2014. "Macro-financial determinants of the great financial crisis: Implications for financial regulation," Journal of Banking & Finance, Elsevier, vol. 44(C), pages 114-129.
  8. Hana Polackova, 1998. "Contingent Liabilities : A Threat to Fiscal Stability," World Bank Other Operational Studies 11522, The World Bank.
  9. Alberto F. Alesina & Silvia Ardagna, 2012. "The design of fiscal adjustments," NBER Working Papers 18423, National Bureau of Economic Research, Inc.
  10. Daniel C. Hardy & Ceyla Pazarbasioglu, 1999. "Determinants and Leading Indicators of Banking Crises: Further Evidence," IMF Staff Papers, Palgrave Macmillan, vol. 46(3), pages 1.
  11. Fabian Valencia & Luc Laeven, 2008. "Systemic Banking Crises," IMF Working Papers 08/224, International Monetary Fund.
  12. Luc Laeven & Fabian Valencia, 2010. "Resolution of Banking Crises," IMF Working Papers 10/146, International Monetary Fund.
  13. Marc Quintyn & David S. Hoelscher, 2003. "Managing Systemic Banking Crises," IMF Occasional Papers 224, International Monetary Fund.
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Cited by:
  1. Mikhail Stolbov, 2014. "How Are Interbank and Sovereign Debt Markets Linked? Evidence from 14 OECD Countries, the Euro Area and Russia," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 61(3), pages 331-348, June.

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